Legislature(2011 - 2012)HOUSE FINANCE 519
02/22/2011 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB7 | |
| HB3 | |
| HB119 |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 3 | TELECONFERENCED | |
| + | HB 7 | TELECONFERENCED | |
| + | HB 19 | TELECONFERENCED | |
| + | HB 119 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 119
"An Act relating to the procurement of supplies,
services, professional services, and construction for
the Alaska Industrial Development and Export
Authority; relating to the definition of 'own' for the
economic development account; relating to the
definitions of 'development project', 'plant',
'facility', and 'project' for the Alaska Industrial
Development and Export Authority; and providing for an
effective date."
3:11:54 PM
MARK DAVIS, ECONOMIC DEVELOPMENT OFFICER, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, discussed that HB 119
worked to modernize the Alaska Industrial Development and
Export Authority (AIDEA). The bill allowed the agency to
have the same procurement provisions as other public
corporations in the state, including the Alaska Housing
Finance Corporation. The agency would also be permitted to
own a percentage of a project it developed through the
means of a corporation or a limited liability company
(LLC). The previous year the legislature had allowed AIDEA
to own a percentage of a project; however, DOL determined
that the percentage did not clearly provide the agency with
the power to be a member of an LLC.
Mr. Davis discussed that the agency also sought to expand
the types of projects it could undertake. Currently AIDEA
could do natural resources, energy, tourism infrastructure,
and industrial development projects. The agency was
provided the opportunity to invest in a health care
facility that would be leased to the federal government;
however, DOL determined that AIDEA was not authorized to
invest in a health clinic. Additionally, AIDEA was asked to
construct a facility that it would build and lease to the
Coast Guard, but it was denied the ability to build a
federal facility. Other expansions would be for community
public purpose, transportation, and prototype commercial
applications. The agency had conducted a survey of other
economic development authorities throughout the U.S. and
had discovered that most of the agencies had the ability to
support new technologies or new prototypes as a way to use
state development capital to promote the diversification of
the state economy. The legislation added clarification that
AIDEA could build roads. The current statute allowed the
agency to build a road to a natural resource development,
such as the DeLong Mountain Transportation System for the
Red Dog Mine; however, it was not clear whether it could
build a road that was not directly lined up with a project.
He explained that if the agency could get revenues from the
road it would do so. The caveat was that anything built on
the transportation of roads would need to pay for itself,
be a project that was bondable, and would have to meet
economic development goals; therefore it could not be used
for general transportation.
3:15:24 PM
Vice-Chair Fairclough moved CSHB 119 (EDT) 27-GH1745\M.
Representative Gara asked whether the legislation would
allow AIDEA to underwrite and fund something like the Knik
Arm crossing. Mr. Davis did not believe that it would. The
agency's current reserves limited bonding for any
particular project to between $250 million and $300
million. He believed that the bridge would be much more
expensive. The agency's intent was to build economic
development projects; therefore, the transportation of the
roads it would build would lead to an economic development
project that would be tied to one of the agency's stated
purposes.
Representative Gara referred to the "omnibus energy" bill
passed in the previous session that created a revolving
loan fund to help private businesses upgrade their energy
efficiencies. He believed that the fund had been placed
under AIDEA but not under the Alaska Energy Authority (AEA)
that governed energy efficiency matters. He wondered
whether AIDEA would have any objection to moving the
revolving loan fund over to AEA. Mr. Davis replied that the
fund belonged under AEA and that AIDEA was not concerned
with the energy conservation efforts that were conducted by
its sister agency.
Representative Gara wondered why AIDEA should be exempt
from the state procurement code. Mr. Davis replied that the
agency was not looking for a total exemption. The board
could adopt regulations through a public process when the
agency worked on a development project with another entity
like the Alaska Housing Finance Corporation. A person who
had a disagreement with the procurement would be required
to file a protest with the board of AIDEA and not with the
Departments of Transportation and Public Facilities or
Administration. The process would be faster given that the
board would have the expertise on what it wished to
purchase. He believed that the streamlined system was
better for the agency and for protestors.
MR. TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (via teleconference),
discussed that the bill worked to provide AIDEA with more
tools that would help it to be effective when it worked on
development projects with the private sector.
Representative Neuman liked the type of legislation. He
referenced the Alaska Administrative Procedure Act and
procurement codes. He wondered about the "basic sideboards"
of the maximum funding that was available. Mr. Davis
responded that AS 36.30.170(b) referenced on Page 2, Line
11, would require a bidder to have business license as
proof that they conducted business in the state. The bill
dealt with procurement for development finance and required
an agency to request bids when they wanted to purchase
items such as computers or desks. He relayed that there
would not be changes to the prevailing wage requirements.
Representative Neuman asked whether there was a maximum
amount of money that AIDEA could spend to develop a
corporation. Mr. Davis replied that the limits were based
on the amount of available cash for a project and could
vary depending upon the amount of reserve cash. He
discussed that there was an open process and the board was
required to approve spending. The current buying authority
was approximately $250 million. Additionally, the agency
was required to seek legislative approval for any bond over
$10 million and approval from local communities for any
bond over $6 million. There was a $400 million annual limit
on the number of bonds AIDEA could issue.
Representative Neuman was glad to hear AIDEA had at least
$150 million. He asked whether manufacturing would fall
under the "project" definition on Page 3, Section 6, which
read "a plant or facility used or intended for use in
connection with making, processing, preparing, transporting
or producing…" He wondered whether manufacturing was a
factor when AIDEA looked at different development plants
and the development of Alaska's resources. Mr. Davis
responded that AIDEA was formed as an industrial
development authority and had always been focused on job
development under AS 44.88.010. He expressed that
manufacturing was one of the agency's goals when it was
available.
3:24:31 PM
Representative Doogan asked about the cash limit of the
agency. Mr. Davis replied that there were two ways to look
at the cash limit. First, under AIDEA's Loan Participation
Program, loans were capped at a maximum of $20 million per
loan. The amount the agency could invest in a particular
project was based on its cash reserves and it was required
to seek legislative approval for any bond over $10 million.
Additionally, the agency was required to obtain board
approval, hold a public hearing, file a finance plan, and
to obtain the approval of local communities for any bond
exceeding $6 million.
Representative Doogan understood that there were legal
definitions about how the LLCs would work. He was concerned
about the state's legal and factual liability in the event
that a project under one of AIDEA's LLCs went "belly-up."
Mr. Davis replied that AIDEA's bonds for a project were not
moral obligations of the state by statute. Any recourse on
a bond would go to AIDEA or to the project itself if it
were a revenue bond. The use of an LLC to effectuate a
development project would mean that anyone seeking recourse
would go against the assets of the LLC first and would have
to show there was an ability to go beyond that by "piercing
the corporate veil." Usually when an LLC went bankrupt the
assets were those of the LLC. The agency was seeking to
coordinate with other investors to leverage its funds and
as they looked at determining what percentage of a project
they would undertake, the developers notified AIDEA that
they would need a legal structure in order to conduct
business with the agency. The LLC would be the same as any
other LLC on the market and the intention of the agency was
to work with other investors. He elaborated that there
would also be insurance on an LLC, therefore, there would
be various pots of money available to potential creditors.
Representative Doogan remarked that there was a fish plant
in his district that had been substantially financed by
state funds and had essentially gone through the same
process. He wasn't certain what the project cost the State
of Alaska. Mr. Davis responded that the fish plant cost the
state approximately $50 million and was liquidated. He
explained that the occurrence was exactly the reason for
the legislation. The purpose of private partners in a
development project was to determine whether other people
in the industry were interested in investing their own
capital in a project because they believed there would be a
financial gain. The agency was required by statute to make
a return on the invested capital and an LLC structure would
ensure that AIDEA would be working with other partners. He
opined that one of the reasons the seafood plant had been
unsuccessful was due to the absence of sufficient partners.
Representative Doogan wondered whether it would still be
possible for AIDEA to venture into operations like the fish
plant or whether the legislation would require the
participation by private individuals under an LLC. Mr.
Davis answered that under the legislation AIDEA would
retain the ability to build a development project on its
own. The agency's strategic plan also called for it to work
with private capital. The legislation would allow AIDEA to
create an LLC in order for it to own a percentage of a
project with other private capital. The goal of the agency
was to leverage its funds to do the most that it could. He
believed the ability for AIDEA to work with private
partners moved in the direction that Representative Doogan
wanted.
Representative Doogan was trying to ensure that there would
not be an eventuality in which the same mistake or enhanced
mistakes were made by the introduction of other financial
structures. He did not believe that was being offered in
the legislation. He believed that AIDEA had specified that
although it had the ability to work alone that it would
prefer to work with other partners.
Mr. Davis responded that it was necessary to look each
particular financial situation. For example, the board
could discern that it was good for the economy and that a
partnership was not necessary for it to invest in a small
and inexpensive development project that had new
technology. As the risk level and cost went up it was
prudent to use another legal vehicle such as a corporation
or an LLC and to have other partners as well. He believed
the safety valve was in the seven-member board. The tool
would help to mitigate risk, increase leverage, and achieve
results.
3:31:48 PM
Representative Edgmon asked whether the AIDEA board would
always be the board of directors in a partnership
situation. Mr. Davis replied that members could be in
control of the LLC or they could elect a managing partner
that would make them more passive investors. In most cases
the agency would take on a more passive roll and would
elect a managing member from the private sector that had
expertise in the specific type of project. Corporate
governance would allow members to place managing restraints
on the managing member related to spending caps, what could
be done on the project, and any major structural change to
the project.
Representative Joule discussed that Alaska was in a
relatively good financial position compared to the rest of
the U.S. He referenced potential military and coastal
infrastructure that may need to happen through the
Department of Defense or other. He wondered whether the
state's strong financial position encouraged the federal
government and other businesses to look to Alaska as a good
business opportunity. Mr. Davis responded that AIDEA
floated some bonds in December 2010 for $60 million and he
had received calls from several interested brokers in other
states. He explained that AIDEA's bonds had a AA rating,
which was currently rare. Secondly, AIDEA had been in
contact with a bank in New York the prior week that was
potentially interested in doing business with the agency.
He believed that the interest demonstrated that Alaska was
a good place to do business based on the national
landscape.
Co-Chair Thomas provided a hypothetical example of a mine
that was unable to afford an access road. He wondered
whether financing through an AIDEA LLC would entitle it to
partial ownership of the mine. Mr. Davis responded that
AIDEA would need to determine what the appropriate
structure would be for the project. The bill would provide
more options, however, the project could potentially be
structured like the public Red Dog Mine road that was
controlled and owned by the agency. In other cases it may
have been prudent to share the risk of the entire project.
The bill provided the agency with the flexibility to make
the appropriate decision for public policy and financial
reasons.
Co-Chair Thomas noted that there were always "political
monsters in the closet" that had undisclosed interests. He
opined that under the guise of good public policy a road
could be built that just happened to go directly by a mine
that was unable to afford to build its own road. Mr. Davis
replied that AIDEA's goal was to look for financial return,
therefore, when it built a road that was used by other
people it was important to determine how they would
contribute to the cost in a way that was consistent with
what the agency helped them with.
Co-Chair Thomas hoped that people would be honest with the
agency. He saw the potential for there to be the state
funded development of roads that led to resources that may
provide no benefit to the state. He opined that there were
legislators that thought mineral royalties were low and
that the state should build "road favors." He was concerned
about the potential for a similar scenario to occur.
Mr. Davis discussed that AIDEA would have to be certain
that a road could pay the bonds or they would not build the
road.
Co-Chair Thomas appreciated the upfront detail. He referred
to a Department of Transportation (DOT) road development
that had a "golden goose" in the form of a mine along the
road.
3:38:26 PM
Representative Guttenberg could see the benefits that could
come as a result of the legislation. He asked whether there
was potential for conflict to occur with the existing
planning processes of DOT, STIP [Statewide Transportation
Improvement Program], or a local community. He wondered
whether the bill required AIDEA to ensure that it would not
interfere or be in conflict with another statewide planning
process for an energy project, road, or other.
Mr. Davis responded that there were three constraints.
First, statute required the agency to obtain the consent of
a local community. Secondly, the board of AIDEA had to meet
and agree on a project in a public process. Thirdly, bond
investors wanted to make certain that a project had support
and that it was not in conflict with any other plans that
would cause the bond market to react negatively.
Representative Doogan referred to an earlier comment
related to financing roads. He wondered what was meant by
"a road that might not line up." Mr. Davis explained that
the DeLong Mountain Transportation System supported a
specific development project because it was directly
connected to the Red Dog Mine. Without the legislation it
was unclear whether AIDEA would be allowed to build a road
that supported an oil drilling area that did not connect
directly with each rig.
Vice-Chair Fairclough MOVED to report CSHB 119 (EDT) out of
committee with individual recommendations and the
accompanying fiscal note. There being NO OBJECTION, it was
so ordered.
CSHB 119 (EDT) was REPORTED out of committee with a "do
pass" recommendation and with previously published zero
impact note: FN 1 (DCCED).
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 3 Explanation of Changes.doc |
HFIN 2/22/2011 1:30:00 PM SSTA 4/12/2012 9:00:00 AM |
HB 3 |
| HB 3 State by State Analysis.doc |
HFIN 2/22/2011 1:30:00 PM SSTA 4/11/2012 9:00:00 AM SSTA 4/12/2012 9:00:00 AM |
HB 3 |
| HB 3 Legal Opinion dated 012811.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 3 |
| HB 3 Sponsor Statement.doc |
HFIN 2/22/2011 1:30:00 PM |
HB 3 |
| HB7.supporting testimony.2.10.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB7.Support Letters.2.10.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB7.NCSL Research Report.10.5.10.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB7.Memo regarding changes to CS.2.11.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB7.Leg Research Report.Other states penalities.2.8.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB7.Article.K2 and Spice_Straight Tox.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB7.Article.DEA Press Release on Synthetic Materials.11.24.10.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB7.Article.ADN Article.Assembly outlaws chemical.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| CS HB 7 (JUD) Sponsor Statement.2.10.11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB 19 Sponsor Statement.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 19 |
| HB 19 Sample License Plates.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 19 |
| HB 19 Legal Research.doc |
HFIN 2/22/2011 1:30:00 PM |
HB 19 |
| HB 119 Sectional Analysis CS EDT.pdf |
HFIN 2/22/2011 1:30:00 PM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
| HB 119 AIDEA Bill Information Sheet and letter.pdf |
HFIN 2/22/2011 1:30:00 PM SFIN 4/15/2011 9:00:00 AM |
HB 119 |
| HB7CS(JUD)NEWFN-LAW-02-18-11.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB 7 Support Letter.pdf |
HFIN 2/22/2011 1:30:00 PM |
HB 7 |
| HB3 ACLU Letter.pdf |
HFIN 2/22/2011 1:30:00 PM SSTA 4/11/2012 9:00:00 AM SSTA 4/12/2012 9:00:00 AM |
HB 3 |